One of the major
perks in government is that one can always live beyond one’s means, to spend
larger than projected revenues or income, then just borrow like crazy as
lenders are more than willing to lend because government has one huge pool of
collateral who are sure to pay a stockpiling debt today and in the future: the
taxpayers.

This moral
hazard– a person, an institution, etc. can become complacent and irresponsible
because someone else is going to pay for whatever mistake in decision, action
or inaction made – is perhaps the single biggest explanation why so many
governments around the world, rich and poor alike, are heavily indebted. The
incumbent politicians shower various forms of subsidies and welfare programs to
certain blocks of voters in order to be elected or reelected, and let the
future administrations worry where to get the money for the over-spending and
over-borrowing made in the past and the present.

The Philippine
government suffers from this habit of living beyond one’s means, with or
without an economic turmoil, with or without natural calamities, with or
without an election. And thus, borrowing has become the rule instead of an
exception.

High public debt
means high interest payment for those liabilities. From 2010 to 2012, interest
payment was almost P300 billion a year on average and comprised nearly
one-fifth of the total national budget on average. Next year, some P334 billion
will go to interest payment alone, especially for domestic debt.

We often hear
that the country’s fiscal condition has stabilized, resulting in some credit
ratings upgrade. The Philippine government, or companies which are based in the
country, can borrow domestically or internationally and enjoy lower interest
rates compared to a few years ago.

While there is
truth to this statement, the fact remains that the government cannot avoid
drastically cutting the need to borrow to finance a budget deficit, or stop
borrowing even for one year. And while new foreign debt securities carry lower
interest rates compared to those made a few years ago, the overall interest
payment remains huge, if not rising.

In the table
below, only those debt securities that charge $50 million a year or higher are
included, and these items were all contracted for budgetary support or
financing the deficit. Multilateral and bilateral loans like from entities like
the ADB, WB and JICA, are mainly project loans.

While the fiscal
condition of the Philippine government is not as severe as those in some
European economies like Greece, Portugal and Spain, this is not an excuse for
not doing certain reforms like drastically cutting borrowing and spending to
what projected revenues can finance and sustain.

There are two
important revenue measures that can be realized in the short term, meaning
within one or two years, and can be used to cut borrowing and the public debt
and hence, annual interest payments. These are (a) revenues from the hike in
excise tax of “sin products” like tobacco and alcohol, and (b) privatization of
the Philippine Amusement and Gaming Corporation.

Cutting the
public debt by say P200 billion, at say 8 percent interest rate, would mean an
annual savings of P16 billion. This savings can be used to finance certain
programs that would require new borrowings. Unfortunately, the projected
revenues from the proposed sin tax hike has already been earmarked or
pre-allocated to finance universal health care of PhilHealth and the Department
of Health. In the meantime, Pagcor’s privatization is not moving fast enough.

If these measures
with huge potential revenues are not passed into law, then another alternative
is simply to cut spending, especially in departments and agencies that have no
clear contribution to improving the country’s productivity like the Department
of National Defense. Or a cut in the budget of public tertiary education, the
state universities and colleges and the corruption-prone Department of Public
Works and Highways.

Governments will
keep expanding along with its coercive powers if people do not assume more
personal and parental/guardian responsibility, more civil society roles, in
running their own lives, their households and communities. Public
spending and indebtedness will keep rising if it is deemed government’s
“responsibility” to purchase small items like condoms and pills, and medicines
and healthcare for adults who abuse their own body with over-drinking,
over-smoking or over-eating.

Cutting the fat
and pork in government spending can start by cutting the unnecessary
expectations of the public on the roles and functions of government.
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